WASHINGTON — Stronger growth by the U.S. economy last quarter will likely strengthen the hand of Federal Reserve officials who want to slow the Fed’s bond purchases next month.
But the biggest factor the Fed will weigh in deciding whether to taper the buys comes next week: The jobs report for August.
The Commerce Department economy grew at a 2.5 percent annual rate from April through June, much faster than previously estimated. The steep revision was largely because U.S. companies exported more goods and imports declined.
The second-quarter growth was sharply higher than the initial 1.7 percent rate reported last month. And the growth this spring was more than double the 1.1 percent rate from January through March.
The improvement in the trade deficit helped offset weaker government spending.
Two key areas of the economy — housing and business investment — remained strong in the revision to second-quarter growth.
Consumer spending, which accounts for 70 percent of economic activity, grew by a 1.8 percent rate. That’s unchanged from the initial estimate but down from a 2.3 percent growth rate in the first quarter.
Many economists said a key signal of the economy’s health in the second half of 2013 will come from today’s report on consumer spending in July. Consumer spending held up in June. But rising interest rates might have caused it to slow in July.
Economists expect growth will stay at an annual rate of around 2.5 percent in the second half of the year, helped by steady job gains and less drag from federal spending cuts. Still, some say higher interest rates might restrain the economy’s expansion in the second half.
Rates could rise even further if the Fed decides to reduce its $85 billion a month in bond purchases at its September meeting. The Fed will consider the stronger second-quarter growth when making a decision. The bond purchases have helped keep long-term borrowing rates low.
Paul Ashworth, chief U.S. economist at Capital Economics, said stronger growth in the second quarter “should give Fed officials more confidence that the recovery is gathering steam as the fiscal drag begins to fade.”
He said the Fed is now more likely to slow the bond purchases next month, although that decision depends heavily on the August employment report.
Long-term rates have risen since Fed Chairman Ben Bernanke said in June that the central bank could begin trimming its bond purchases this year if the overall economy and the job market kept improving.
Many economists think the Fed will begin slowing its monthly bond purchases to $70 billion or $75 billion. Others think it will delay any pullback in bond buying to await more data on how the economy is faring in the second half of the year.
Notice about comments:
The Post and Courier is pleased to offer readers the enhanced ability to comment on stories. Some of the comments may be reprinted elsewhere in the site or in the newspaper. We ask that you refrain from profanity, hate speech, personal comments and remarks that are off point.